Dainichiseika Color & Chemicals Mfg (TSE:4116) Could Be A Buy For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Dainichiseika Color & Chemicals Mfg. Co., Ltd. (TSE:4116) is about to trade ex-dividend in the next 3 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Dainichiseika Color & Chemicals Mfg investors that purchase the stock on or after the 28th of March will not receive the dividend, which will be paid on the 30th of June.

The company's upcoming dividend is JP¥90.00 a share, following on from the last 12 months, when the company distributed a total of JP¥180 per share to shareholders. Last year's total dividend payments show that Dainichiseika Color & Chemicals Mfg has a trailing yield of 5.6% on the current share price of JP¥3230.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Dainichiseika Color & Chemicals Mfg has been able to grow its dividends, or if the dividend might be cut.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Dainichiseika Color & Chemicals Mfg paid out just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Dainichiseika Color & Chemicals Mfg generated enough free cash flow to afford its dividend. It paid out more than half (56%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

View our latest analysis for Dainichiseika Color & Chemicals Mfg

Click here to see how much of its profit Dainichiseika Color & Chemicals Mfg paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Dainichiseika Color & Chemicals Mfg's earnings have been skyrocketing, up 23% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Dainichiseika Color & Chemicals Mfg has delivered 12% dividend growth per year on average over the past 10 years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Has Dainichiseika Color & Chemicals Mfg got what it takes to maintain its dividend payments? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Dainichiseika Color & Chemicals Mfg looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Dainichiseika Color & Chemicals Mfg for the dividends alone, you should always be mindful of the risks involved. For example - Dainichiseika Color & Chemicals Mfg has 2 warning signs we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.